Market Overview For Shredded Office Papers

by Bill Moore, Moore & Associates

Pricing

Office papers in their shredded form as produced by document destruction companies fall into the recovered paper classification of Sorted Office Papers (SOP). Recovered paper markets exhibit extreme volatility and SOP is no exception. After rising in price more than $40/ton from the fourth quarter 2003 to the end of 2004, the SOP market lost all of this gain and bottomed out in the 2nd half of 2005 at a US average of about $100/ton (please see Figure 1). One of the primary factors in this market drop was significant new supply of SOP being produced during that time frame from the rapidly growing document destruction business.

As you can also see in the Figure, from the end of 2005 to the current quarter, market prices for SOP have gone up almost $50/ton. There are two primary factors associated with this increase; slow growth of new supplies of shredded office papers coming into the market, and improved demand for SOP, both in North America and offshore.

The Use of SOP

Figure 2 shows a pie chart of the consumption of Deinking High Grades (the closest category of recovered paper grades that wide spread statistics are kept for; SOP makes up the largest component of deinking high grades). As you can see in this Figure, domestic tissue mills are the largest user of the materials consuming almost half of the supply. But a not insignificant 28% of the grade category goes export with Mexico , Canada , China , and India being the largest users. Most of the use of deinking high grades in the printing/writing and recycle paperboard sectors is not the rather low-end shredded SOP produced from document destruction.

Generation Trends of Office Papers

Prior to 1998, shredded office papers made up less than 10% of all office papers generated. From 1998 through 2005, the growth in supply from shredded office papers was significant.

By 2006, Moore & Associates estimates that shredded material is now more than 45% of the SOP market. Conventional office paper recycling programs, which were the largest source of SOP through the late 1990s, are rapidly declining. The growth in supply of SOP from document destruction is slowing after five years of rapid increase.

The following figure shows the “hierarchy” of the source of shredded documents starting with all printing and writing papers.

Printing/Writing Papers (office papers, cover stock, specialty bonds, etc)

Deinking High Grades (SOP, Sorted white ledger, etc)

Office Papers (SOP)

Shredded Destroyed Documents

Other Factors Related to the Supply of Office Papers

The generation of printer recovered paper grades (many of which are interchangeable with office papers, e.g. printer's mix) is declining due to an overall downturn in the printing industry. The use of office papers per capita worker in the US peaked in 1999 and has been slowly declining over the last seven years with the rate of decline accelerating in the last two years. These two factors are due almost totally to the digital revolution and the decline in the use of paper documents in the transaction of business and communications in the US.

Demand for Recovered Office Papers

The US tissue market remains one of the stronger paper product sectors in the US . Tissue use grows with population and gross domestic product. The recent sharp upturn in price has been aided by a number of new recycled tissue mill projects which will start up during 2007.

Although the use of recycled deink pulp in printing/writing papers and other high end products (cups, packaging, magazines, etc.) use very little shredded SOP because of quality, the strength in this demand market has a direct effect on the overall SOP market and therefore the value of shredded documents. The “green” revolution has become mainstream in American business. Many of the copy papers, etc. used in the office now contain recycle content on a regular basis, and packaging companies (as well as other paper users) are routinely demanding recycled content in their products, many which are satisfied by the use of deink pulp, which is a major user of SOP.

Export Market

Office papers were not historically considered an offshore export grade. The largest “export” markets, as stated before, were Canada and Mexico – where they are used primarily for tissue. China is becoming a more important player in the use of US SOP. China 's paper industry is booming and the primary use of SOP is deinking to product white-topped paperboard products (corrugated boxes, and other boxes that have white outside layers) for printing and advertising purposes. This white top layer is frequently produced by deinking SOP.

The fourth largest export user of US deinking high grades is India . India 's primary use is in producing lower quality printing and writing papers. India has very little forest resources and few virgin pulp mills to produce the bleached fibers that are used in printing and writing papers.

Quality

Prior to the late 1990s, shredded office papers were always considered a marginal quality material for use in the tissue industry. Improvements in the deinking and sorting of SOP have led both US and offshore mills to be more tolerant of shredded office papers. Georgia-Pacific was one of the leaders in this transition and what was once considered unusable (shredded office papers) are now a primary raw material for what we call the “away from home” tissue products (commercial/institutional use). Very little SOP finds its way into high-end consumers product, i.e. facial tissue.

Conclusion

With growth in the generation of SOP from the document destruction sector slowing, the decline in use of office papers in general, and the gradual decline in the printing industry, the supply of office papers for recycle pulp mills will be relatively tight over the long term. This bodes well for suppliers of SOP.

Coupled with this slowing supply growth is moderate growth demand coming from the tissue sector, recycle pulp for higher end products, and export to Mexico , Canada , China , and India.

Moore & Associates provides a range of recovered paper consulting services to mills, suppliers, equipment, finance and other companies since 1995. Further information about Moore & Associates can be obtained from the company's website, www.marecycle.com or call 770-518-1890.